Energy Futures Moving Modestly Lower
Energy futures are moving modestly lower this morning as global petroleum prices continue to teeter totter between trade tantrums and tanker threats.
This time it’s India announcing retaliatory tariffs against the US that’s getting credit for the trade fears. An interesting side note is that India has been one of the key buyers of Iranian crude, so these trade negotiations could have a direct impact on the flow of oil.
Speaking of which, the Saudi’s are leading the push to create an international coalition to protect shipping lanes that have come under attack in recent weeks.
Money managers continue to bail out of their bets on higher energy prices, with net length being slashed across the board again last week. At this point, the majority of the liquidation seems like it has been done, meaning speculators heading for the exits may no longer be a catalyst for lower prices. If the June lows can hold, there’s a growing technical argument for higher prices in the next few weeks, which could draw some of those funds back into the game.
Ethanol prices continued to rally along with corn futures on Friday, as the outlook for crops in 2019 continues to go from bad to worse. RIN values have also rallied in sympathy with renewable fuel prices, reaching their highest levels in 3 months.
Baker Hughes reported a decrease of 1 in last week’s oil rig count, bringing the US total to its lowest since February 2018. The Permian basin continues to lead the decline with 5 fewer rigs counted last week, while the “other” basin category saw an increase of 5, and the other major plays held steady.
According to a filing with the TCEQ, Exxon’s Baytown refinery had an FCC unit unexpectedly shut down last night. So far there does not appear to have been any reaction in cash markets, and with PADD 3 gasoline stocks holding above their 5-year seasonal range, the impact may not be noticeable.
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The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
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Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.